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Music Industry Strikes Historic Deal on Mechanical Royalty Rates

The proposed agreement adds five new categories to compulsory licensing, which RIAA chairman hails as a "historic" agreement allowing new digital music services to launch.

Some of the largest trade groups in the music industry have announced in tandem an agreement that sets mechanical royalty rates on digital music going forward. The deal resolves a contentious rate proceeding at the Copyright Royalty Board over statutory license fees and creates new rates and terms for a variety of new "cutting-edge business models," including cyberlockers and subscription-based services.

The agreement, labeled "historic," was announced Wednesday by the Recording Industry Association of America, the National Music Publishers Association and the Digital Media Association.

Together, they say they soon will be submitting a 25-page proposed agreement to the CRB that carries over, with limited changes, existing rates and terms for CDs and downloads. Perhaps most significant, the parties are proposing adding five new categories under Section 115 of the Copyright Act, which covers mechanical royalties:

Mixed service bundles (for example, a locker service, limited interactive service, downloads or ringtones combined with a nonmusic product such as a mobile phone, consumer electronics device or Internet service)

Purchased content lockers (a free locker functionally provided to a purchaser of a permanent digital download, ringtone or CD where the music provider and locker have an agreement)

“Limited offerings” (subscription-based service offering limited genres of music or specialized playlists)

Music bundles (bundling music products such as CDs, ringtones and permanent digital downloads)

By adding these services to the stream of mechanical royalty revenue, the industry hopes to avoid some of the controversies that have bedeviled past rate negotiations. Royalties on Internet music streaming have been a particularly contentious topic over the years, and the parties also spent quite a bit of time arguing whether statutory rates applied to new music products such as ringtones and ringbacks.

“Today’s agreement paves the way for our members to continue developing exciting new business models that satisfy consumers, create greater revenue opportunities for music creators and effectively fight piracy, the music industry’s greatest threat," said Lee Knife, executive director of the Digital Media Association.

NMPA president and CEO David Israelite added that the agreement was the result of months of discussion and in talking with Billboard, spoke about the upside for music publishers whenever record labels make deals in the digital media space. That could even include the ability to profit when labels make partnerships that include equity stakes in digital enterprises or guaranteed advertising. "If they get a better deal, we get a better deal," says Israelite.

“This is a historic agreement that reflects our mission to make it easier for digital music services to launch cutting-edge business models and streamline the licensing process,” said RIAA chairman Cary Sherman.